Value Creation from E-Business Models

Wendy Currie

• Publisher: Butterworth-Heinemann
• Year: 2004
• Print ISBN: 9780750661409
• eBook ISBN: 9780080481562
• Topic: Computer Science
• Subtopic: Business Intelligence
• Index: Computer Science

Value Creation from E-Business Models provides a thorough analysis of what constitutes an e-business model. Unlike many e-business books available, this text draws together theoretical and empirical contributions from leading academic scholars in the field of management information systems. Divided into four parts, E-Business Models and Taxonomies; E-Business Markets; E-Business Customer Performance Measurement; and E-Business Vendor Applications and Services, this book is the critical dissection of E-Business that today's academic community needs.* World class academic contributors brought together in one volume * Demonstrates that there are e-business models which create value for customers and vendors alike* Learn from the lessons of the past five years in developing and implementing e-business models

Part One

e-Business Model Ontologies and Taxonomies

1

Value creation from e-Business models: issues and perspectives

Wendy L. Currie

Over the last decade, interest in e-Business has evolved from optimistic scenarios with the explicit message in the popular press that: If you’re not an eBusiness, you’re out of business, to pessimistic scenarios pointing to the demise of the dot.coms (Cassidy, 2002) largely as a result of ‘flawed e-Business models’ (Hagel, 2002). The literature on e-Business models is varied with contributions focusing upon the successful examples of Amazon.com, e-bay and priceline.com from a buyer behaviour perspective (Kauffman and Wang, 2001); taxonomies of e-Business models (Timmers, 1999; Weill and Vitale, 2001); value creation from e-Business models (Amit and Zott, 2000) and e-Business model applications and services, such as application service provisioning (ASP) (Kern et al., 2002; Currie et al., 2004) and Web services (Hagel and Seely-Brown, 2001).

The concept of the business model has gained momentum in recent years, partly through the growth and interest in e-Business. Definitions of what constitutes a business model vary in the literature, with some running the risk of being tautological. Thus, Magretta (2001, pp. 86–87) contends that: a good business model remains essential to every successful organization, whether it’s a new venture or an established player. Timmers (1999, p. 5) defines a business model as ‘the organization (or ‘architecture’) of product, service and information flows, and the sources of revenues and benefits for suppliers and customers.’ Similarly, Rappa (2000, p. 1) claims that: In the most basic sense, a business model is the method of doing business by which a company can sustain itself, that is, be profitable. The link between the business model concept and e-Business has become explicit in recent years. Weill and Vitale (2001, p. 34) define an e-Business model as: a description of the roles and relationships among a firm’s consumers, customers, allies, and suppliers that identifies the major flows of product, information, and money, and the major benefits to participants.

Such a broad definition poses problems in researching e-Business models. Recognizing this, Weill and Vitale (2001) deconstruct the e-Business model into eight ‘atomic e-Business models’.^1. Firms may develop one or a combination of these atomic e-Business models to pursue their business strategies. There will also be variants of each atomic e-Business model, depending upon the factors outlined by the authors. Other writers suggest that the business model is a useful construct for understanding value creation from e-Business. Amit and Zott (2000, p. 1) assert that: a business model depicts the design of transaction content, structure and governance so as to create value through the exploitation of business opportunities. We propose that a firm’s business model is an important locus of innovation and a crucial source of value creation for the firm and its suppliers, partners and customers. Similarly, Ross et al. (2001, p. 3) claim that business models demonstrate: changes in how the firm generates revenues or manages costs.

Treating the e-Business model as the unit of analysis is useful since it enables a deeper understanding of firm performance (Magretta, 2001), particularly at the organizational, rather than industry level. A cursory glance at the literature identifies a common thread, which is the search for successful business models. During the first phase of the dot.com era (from 1994 to 2001) the majority of the popular publications, largely from the technology sector, suggested that developing an e-Business was critical to the survival of the firm. Within the media, there was talk of the ‘old economy’ (bricks and mortar) versus the ‘new economy’ (Internet businesses), with the former often described in pejorative terms (see Rappa, 2000).

Firms, it was suggested, had little choice but to ‘innovate or die’. In 1999, 3957 US companies received a total of $59.5 billion to develop e-Business inititatives. The average venture capital deal in 1999 was $15 million (Cassidy, 2002, p. 240). Many of these firms adopted a ‘get big fast’ (GBF) strategy (Oliva et al., 2003) by forming strategic alliances and partnerships to compete in the high velocity technology market (Eisenhardt and Martin, 2000). e-Business models became prolific. According to Timmers (1999), e-Business models developed as e-shops, e-procurement, e-mail, e-auctions and e-markets (EMs). In fact, just by prefacing anything with an ‘e’ seemed to imply an e-Business model existed. Taxonomies of e-Business models emerged (Timmers, 1999; Weill and Vitale, 2001). Others focused more specifically at the emergence of EMs (Bakos, 1998), value creation from e-Business (Amit and Zott, 2000; Magretta, 2001), profitability and revenue generation (Ross et al., 2001), B2B e-Commerce (Soh and Markus, 2002) and group buying behaviour on the Internet (Kauffman and Wang, 2001) to give a few examples.

Against a background of ‘hype’ about e-Business models, which preceded the dot.com crash of around 2001, it is apparent that very few ‘successful’ e-Business models exist. Whilst our interest in Amazon.com, e-Bay, Dell, etc. continues, our emphasis upon the few that are currently successful tends to eclipse the many tens of thousands worldwide that have failed! Indeed, what happened to all the venture capital money, which was used to support the start-up of thousands of e-Business ventures? Clearly, the answer is that most failed, and many investors were left with collapsing share prices.

As the dot.com hype was replaced with the stark reality that many of these new e-Business ventures were unattractive to potential customers, some traditional ‘bricks and mortar’ firms abandoned their e-Business efforts. For example, in the case of ASPs, many established businesses, such as telecommunications firms and independent software vendors (ISVs), recognized that their ‘core business’ was far more lucrative than diverting attention to ASP activities. ISVs further saw little value in moving to a remote model of software delivery based upon a subscription, pay-as-you-go pricing model, when they could generate more revenues using a traditional licence fee and maintenance contract model (Currie et al., 2004).

To some authors, the focus on the business model concept was problematic. The inherent problems with business models could be explained by adopting an industry analysis of the markets and hierarchies in which firms compete. According to Porter (2001, p. 73): the definition of a business model is murky at best. Most often, it seems to refer to a loose conception of how a company does business and generate revenue. Yet simply having a business model is an exceedingly low bar to set for building a company. Generating revenue is a far cry from creating value, and no business model can be evaluated independently of industry structure. The business model approach to management becomes an invitation for faulty thinking and self-delusion.

Whilst these criticisms are valid (and will be revisited throughout this volume), the success of some e-Business ventures and the failure of many more, we argue, require both an industry-level analysis and a firm (organizational) level analysis. Whilst it is clear that many of the dot.com failures could be analysed in terms of structural problems in the capital markets (Quinn-Mills, 2001), the relative competitive success of other firms can be explained by other factors, notably, entrepreneurial and managerial capability, and the ability to leverage technology for competitive advantage (Weill and Broadbent, 1998). To this end, the fact that technology is largely a commodity (Carr, 2003), accessible to most firms who can afford it, does not adequately explain comparative differences in the use of technology assets...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• List of Figures
• List of Tables
• Preface
• Dedication
• Part One: e-Business Model Ontologies and Taxonomies
• Part Two: e-Business Markets and Strategies
• Part Three: e-Business Performance Measurement and Value Creation
• About the authors
• Glossary of terms
• Index